Dollar strength prompts major AUD/USD breakdown
James Chen, CMT December 19, 2016 5:39 PM
Sustained US dollar strength on the back of Federal Reserve hawkishness and Trump-driven market optimism has prompted major currency moves in the past few weeks. Among the most prominent of these moves have been a EUR/USD breakdown below the key 1.0500 level and an epic USD/JPY surge above multiple resistance levels in the past month. Another major move that has just occurred as a result of US dollar strength has been a critical breakdown for AUD/USD.
December 19, 2016 – Sustained US dollar strength on the back of Federal Reserve hawkishness and Trump-driven market optimism has prompted major currency moves in the past few weeks. Among the most prominent of these moves have been a EUR/USD breakdown below the key 1.0500 level and an epic USD/JPY surge above multiple resistance levels in the past month. Another major move that has just occurred as a result of US dollar strength has been a critical breakdown for AUD/USD.
This breakdown below the key 0.7300 level occurs after a plunge last week that saw AUD/USD slide rapidly from 0.7500-area resistance, which was also around the 200-day moving average.
Much of this slide for AUD/USD can be attributed to an extended boost for the US dollar after the Fed’s increasingly hawkish “dot-plot” outlook for 2017 was revealed last week. That showed Fed officials now expecting three further rate hikes in 2017 instead of the previous expectations for two hikes.
On the Australian side, the Reserve Bank of Australia (RBA) decided two weeks ago to keep its cash rate unchanged at the record low of 1.50%, instead of cutting interest rates further. This expected policy steadiness was credited to global economic growth, an improving labor market, steadier China conditions, and rising inflation. While this less-dovish stance by the RBA gave a modest boost to the Australian dollar, the recent strength of the US dollar has dominated currency movement. Adding onto the USD-driven pressure on AUD/USD, heavily-depressed gold and commodity prices have also weighed on the currency pair.
Having broken down below the key 0.7300 level, AUD/USD has reached a critical juncture. If the currency pair remains below 0.7300, the outlook continues to be strongly bearish, especially in light of the expected acceleration of Fed policy tightening. In this event, the next major downside target is around the 0.7150 support level, last hit in May, followed by the 0.7000 psychological level.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.